PPH VanEck Pharmaceutical ETF

overall rating:

1

planets

Chiara Savanco
2/26/2022
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VanEck Pharmaceutical PPH (first established in December 2011) is an Exchange Traded Fund that replicates the performance of the MVIS US listed index (MVPPHTR) and invests in the pharmaceutical sector. I award it a sustainability rating of 1 because, while the portfolio is spread over international R&D- oriented assets which is good to encourage industry development in inclusive and sustainable healthcare solutions, the sustainability profiles of its holdings raise concern. Once the ESG scores for B-M Squibb and Sanofi are deconstructed, for instance, one discovers how these biopharma firms contribute to chemical water pollution. Their lack of transparency on the effects of  production is another red flag that points to greenwashing. Second, the holdings monitoring process remains too unambitious on the environmental requirements of these firms.  Third, it is clear that the fund managers at VanEck operate within an institutional culture that is yet to integrate sustainability in its everyday financial practices, including thematic or sector funds. In the pandemic era, with the healthcare industry under the spotlight and increased investment in pharmaceuticals, managers and investors must scale up their attentiveness to environmental standards and liveability.

What it's made of:

1

VanEck Pharmaceutical ETF (PPH) is composed of 25 holdings, totaling a net asset value of $389.74 million as of 31/01/2022. The top ten holdings include Bristol-Myers Squibb (5.44% of assets), Abbvie Inc (5.42%), Merck&Co Inc (5.37%), Viatris Inc (5.23%), Sanofi (5.23%), Novartis (5.15%), Astrazeneca Plc (5.09%), Johnson and Johnson (5.06%), Pfizer Inc (4.95%) and McKesson Corp (4.92%). PPH Vaneck ETF is wholly based on the Healthcare sector, which makes the investment reasonably volatile. An upside of PPH ETF is its broad exposure to R&D assets and the international nature of its holdings. Investing in international R&D increases competitiveness and is bound to encourage the research and adoption of healthcare solutions that are inclusive, resilient, and which have sustainable production cycles.                                                                                             At first glance, the sustainability disclosures and reports of these top biopharma companies look good. Sanofi, Astrazeneca, Merck&Co have been rated as the top six pharmaceutical firms leading in sustainability by the ESG recruitment company, Acre. The French multinational Sanofi, reports it is on track to achieve the goal of recycling and reusing 90% of waste generated by 2025- it currently is at 73%. AstraZeneca boasts achieving an ‘AA’ listing from CDP on climate change awareness. However, these scores aren’t accurate representations of performance- not least because CDP collects self-reported survey responses from companies. Digging deeper, Sanofi remains untransparent on its environmental impacts on forests and the use of cattle products, palm oil and timber.  Furthermore, despite having a ‘Medium’ ESG rating of 22, with a good environmental score of 0.3, Bristol-Myers has accumulated more than 10 environmental violation records (2001-2015) for chemical water pollution, worth a penalty fare of < $6million. This not only testifies the lack of transparency in ESG reports, but the violations themselves pose big setbacks on the safety of the ETF investment- especially as Bristol-Myers is the top holding company. A general problem with ESG disclosures in the biopharma industry is that companies craft forwards-looking statements and commitments to reduce their exposure to current ESG performance failures. The holding companies of the PPH VanEck ETF are no exception; it is thus difficult for investors to ascertain the ethical soundness of their ETF investments. 

How it's made:

1

VanEck Pharmaceutical ETF (PPH ) seeks to closely replicate the performance of the MVIS US Listed Pharmaceutical 25 Index (MVPPHTR), tracking the comprehensive performance of companies in the pharmaceutical industry. As is customary with index methodology, the holding percentages are calculated based on market cap. The fact that Bristol-Myers Squibb still retains the top holding position despite its questionable environmental record, testifies that environmental livability is not really among the concerns of the portfolio manager. The VanEck ETF investment process doesn’t appear to be very responsive to changes in the sustainability ratings of its holders. Indeed, the holdings selection parameters used in conjunction with the MVPPHTR index, and based on the Morningstar ESG scores, appear lax and under-ambitious with regards to sustainability; to be excluded from the fund, companies need to have an ‘ESG Risk rating of high or severe’, a ‘Carbon Risk Rating of High or Severe’ and a ‘Controversy rating of severe’. The sustainability bar is clearly set low.

Who makes it:

1

The PPH ETF is managed by VanEck, a global investment manager established in 1955 and specializing mostly in ETFs and Mutual Funds. The firm appears attentive to the issue of sustainable investing in a variety of sectors; it currently operates 9 sustainable funds based on the future of food, green metals, carbon energy… However, the fact that ‘sustainability investments’ are listed as a category distinct from other investment types (like the ‘thematic investment’ encapsulating the PPH ETF), is telling of the fact that the sustainability mindset and sustainability practices are not yet incorporated into the firm’s financial services. Indeed, very few words are spent on sustainability and ESG on the webpage dedicated to the PPH ETF. Similarly, the portfolio managers for the PPH ETF, Peter Liao and Guo Hua Jin, don’t disclose any environmentally-related statement in relation to the ETF. From their CV, it also looks like they haven’t worked in ESG before, but rather have a conventional 'finance' background. This casts doubt on their intentionality and questions their attention towards sustainability when managing portfolios. As a firm, VanEck should also do better in terms of corporate governance. It must improve on the diversity of its executive board, which currently includes all American seniors educated at top American Universities. Boosting the diversity of its executive board and of the analysts and portfolio managers, VanEck could further boost its sustainability profile, with positive implications for the funds it manages.